Tags: China | Inflation | Record | High

China Inflation Hits 28-Month High

Monday, 13 December 2010 10:06 AM

China's inflation surged to a 28-month high in November, officials said Saturday, despite government efforts to increase food supplies and end diesel shortages.

The 5.1 percent inflation rate was driven by an 11.7 percent jump in food prices year on year.

The news comes as China's leaders meet for the top economic planning conference of the year and as financial markets watch for a widely anticipated interest rate hike to help bring rapid economic growth to a more sustainable level.

"I think this means that an interest rate hike of 25 basis points is very likely by the end of the year," said CLSA analyst Andy Rothman.
China took the unusual move of releasing the inflation news on a Saturday, giving the markets time over the weekend to digest the news.

"So obviously we knew we were in for quite a large number," said Alistair Thornton, China analyst for IHS Global Insight. Economists had forecast that China's inflation rate would rise to over 5 percent in November.

China tried to calm the inflation news. "As long as all departments and regions conscientiously implement the 16 measures by the State Council for making prices stable, prices should be kept basically stable in the near future," said Sheng Laiyun, spokesman for the National Statistics Bureau.

The State Council, China's Cabinet, is trying to rein in food prices by launching efforts to increase production of vegetables and other basic goods. Authorities are cracking down on hoarding and speculation they say are partly to blame for the price rises.

The bureau also said industrial output, an indicator of economic health, was up by 13.3 percent in November from a year earlier. Retail sales were up 18.7 percent, important to the government's effort to build up domestic consumption to drive growth. Neither figure was a surprise.

China's inflation has risen steadily this year despite government efforts to cool an investment boom. It spiked to 4.4 percent in October — well above the official 3 percent target.

The inflation figure should decline next month but is expected to remain high in the first quarter of next year, said China's top economic planning body, the National Development and Reform Commission.

Economists blame the price hikes on a flood of money coursing through the economy from stimulus spending and bank lending that helped China recover quickly from the global crisis.

Inflation is especially sensitive in a society where poor families spend up to half their incomes on food. Rising incomes have helped to offset price hikes, but inflation undercuts economic gains that help support the ruling Communist Party's claim to power.

Tom Orlik, an analyst in Beijing for Stone & McCarthy Research Associates, said it was alarming to see price pressure moving beyond food prices. Housing prices were up 5.8 percent and health care prices were up 4 percent.

But Rothman said Chinese consumers with their growing income levels are in a better position to handle prices increases, and he pointed out that food still accounted for about 75 percent of the November price rises.

"So I think inflation continues to be primarily a weather phenomenon, with monetary policy playing a supporting role," he said, adding that recent bad weather had contributed to a shortage of food.

Thornton said one can see food prices tailing off week to week, which should show up in next month's inflation figures.

Inflation has risen well above the 2.5 percent paid on Chinese bank deposits. That has triggered an outflow of cash into stocks and real estate as families seek a better return, fueling fears of a dangerous price boom and bust.

Analysts have said inflationary pressure could spread to other areas unless the government hikes rates and tightens credit.

China on Friday ordered its banks to increase their reserves in a move to curb lending.

Communist leaders are trying to guide China's rapid expansion to a more sustainable level after growth eased to 9.6 percent in the three months ended September, down from a post-crisis peak of 11.9 percent in the first quarter.

But any moves that further slow growth could affect the United States, Australia and other economies by cutting demand for their exports of iron, machinery and other goods.

Costs for fuel and other necessities in China have also jumped as supplies have run short.

Coal, which fuels about three-quarters of the country's electricity generation, is a special concern, especially in winter months when it is also used in heating systems in the north.

The National Development and Reform Commission, China's main economic planning agency, has forbidden provinces from limiting shipments of coal beyond their borders, ordering them to ensure stable supplies.

© Copyright 2019 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

1Like our page
China's inflation surged to a 28-month high in November, officials said Saturday, despite government efforts to increase food supplies and end diesel shortages. The 5.1 percent inflation rate was driven by an 11.7 percent jump in food prices year on year. The news comes...
Monday, 13 December 2010 10:06 AM
Newsmax Media, Inc.

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

© Newsmax Media, Inc.
All Rights Reserved